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Tax Exemption From Ministry Of Finance For Indian Seafarers

The circular comes after an income tax tribunal in Kolkata ruled that any income received in India or credited in a non-resident external bank account in India is taxable even though the employment was rendered outside the country.

“It is hereby clarified that salary accrued to a non-resident seafarer for services rendered outside India on a foreign ship shall not be included in the total income (taxable) merely because the said salary has been credited in the NRE account maintained with an Indian bank by the seafarer,”

under secretary for foreign tax and tax research at CBDT Subhash said.

The Kolkata tribunal’s judgment in June had sparked fears across the shipping sector as it could have affected over one lakh seafarers across the country, especially in Goa and Kerala.

Union ministry of finance has granted income tax exemption to Indian seafarers sailing aboard foreign ships outside India for more than 182 days a year.

Through the Central Board of Direct Taxes (CBDT) circular no. 13/2017, the ministry of finance has issued a clarification regarding liability to income-tax in India for a non-resident seafarer receiving remuneration in NRE (non-resident external) account maintained with an Indian bank.

With this, the government has accepted the long-pending demand of India’s leading merchant navy Unions, the Maritime Union of India (MUI) and the National Union of Seafarers of India (NUSI).

MUI general secretary Amar Thakur said,

“This decision is a huge boost for over 1.3 lakh Indian seafarers, as tax-free income has always been an added attraction for Indian merchant navy workforce, which contributes around $40 million annually to our country’s exchequer.”

NUSI general secretary Abdulgani Serang said,

“Income tax exemption to Indian seafarers will certainly strengthen the centre’s ‘Maritime Agenda 2020’ aimed at increasing the global share of Indian seafarers to 9% from 7% currently.”

A judgment delivered by the Kolkata income tax tribunal in August 2016 mandating Indian merchant navy workforce to pay taxes in India had shattered the morale of Indian seafarers.

Subsequently, MUI and NUSI had jointly challenged the tribunal’s decision in August 2016 in the Kolkata High Court through Dave & Padvekar Associates and Advocates.

Thereafter, representatives of MUI and NUSI sought centre's intervention in the interest of Indian seafarers through a series of meetings in New Delhi with CBDT chairman Sushil Chandra, union shipping minister MansukhMandavia and union finance minister Arjun Meghwal along with advocate

R S Padvaker, ex-judge ITAT and the member of parliament Gajendara Singh Shikhawat.

A big issue during the last few years of the UPA government was the huge demands raised by a target crazy Income Tax Department. The main sufferers were the corporates. The current finance minister (then in the opposition) even coined the word “tax terrorism” and the BJP pledged to change that on coming into power.

There have been some positive changes in the attitude of the tax department since the party came to power but if you ask any professional who interacts with the tax department, he will tell you that nothing much has changed on the ground. In fact, driven by the impossible to achieve targets, the tax department is also targeting the goose that lays golden eggs – namely the NRI population.

The same NRI population whose remittances have assisted India through our tough times are now being targeted by the income tax department.

Let us state the facts, there are many people serving on commercial ships that sail in international waters. They lead a rather hard life spending about 7-8 months every year onboard the ships and hence are treated as non-resident Indians.

Their salaries are paid in dollars by their foreign employers. Although they are non-resident Indians, they normally have no base outside India and hence, ask their employers to remit this money to their NRE accounts in India.

Remember, they have a choice to ask their employers to remit this money anywhere in the world but still, they choose to get the money to their Indian bank account.

There are a large number of shippies (as they are colloquially called) and though figures are difficult to compile, rough estimates suggest that it can be around Rs 6-7 thousand crores. An income tax officer saw an opportunity to fulfill his revenue targets by taxing these remittances on the ground that though these salaries are earned overseas they are taxable in India because these are “received” in India. Some cases in the past have been decided by the tax department.

However, one of these cases was decided on June 1, 2016, in the Kolkata tribunal in the case of Tapas Kumar Bandopadhyay v/s Deputy Director of Income-tax (I.T.A No.70/Kol/2016 Assessment Year: 2010-11) in favor of the tax department.

At the risk of simplifying a rather complex case let me state that one of the main factors that weighed with the court was that if this income was not taxed in India – it would escape tax altogether as no other country has taxed it.

Unfortunately, nowhere was it bought out that even India would not have been able to tax it if the taxpayer had asked his employer to remit the money to his bank account in Dubai or Singapore instead of getting it remitted to his home country.

After all, a shipping cannot be expected to be conversant with the technical aspects of the income tax law and this was a practice that had been going on for decades without any issues.

With this case being decided in favor of the tax department several notices are reported to have gone out to other shippies. And the issue is not restricted to shipping alone. There are many NRIs who work in foreign countries where a part of their salary is paid in US dollars which are remitted to their NRE bank accounts in India.

They were also at risk of being asked to pay tax on these incomes not only for this year but also for the past many years.

Obviously, there is technical merit in the tax department’s case (after all the court has decided in its favor) but it is common sense that salaries earned abroad should not be taxed in India just because it is directly brought to India.

If the law can be interpreted otherwise, the law should be changed – and this time retrospectively in favor of the taxpayers.

HIGHLIGHTS

Union ministry of finance has granted income tax exemption to Indian seafarers

sailing aboard foreign ships outside India for more than 182 days a year

liability to income-tax in India for a non-resident seafarer receiving remuneration in NRE (non-resident external) account maintained with an Indian bank.

If you have queries regarding the blog, drop the comment in the comments section!!